1. Field of the Invention
The present invention relates to systems and methods for calculating effective advertisement placement on the internet. More particularly, the present invention relates to systems and methods to assist advertisers to determine where and when to spend their advertising money for internet-based ads based on the effective determination of conversion and click-through probabilities.
2. Description of the Prior Art
Search engines such as Google®, Yahoo® and the Microsoft Network (MSN®) have become invaluable tools for companies to market themselves to potential customers. By typing in a search query, a user is provided both with a list of web pages that the search engine itself deems highly relevant to that term (i.e., the main list of ‘natural’ results), but also with a list of ‘sponsored’ advertisements in which marketers have agreed to pay the search engine for each user who clicks on the sponsored ad (Cost-Per-Click (CPC)), thus delivering the user to a specific page on the marketer's website. Google also serves text-based ads for display on participating websites via its AdSense™ program, which from advertisers' perspective is conceptually and mechanically little different from advertising on Google's search engine itself.
The position any specific ad appears in the list of sponsored results and the amount which advertisers actually pay is determined by a search-engine-run auction, with higher bidders generally getting a higher position on the list and each bidder paying the smallest incremental amount more than the bidder in the next-lowest position. Because ads are shown on a continuous basis, the auctions are run on a continuous basis, and thus the position, bid and actual CPC of any individual ad can change at any instant.
To each advertiser, search engines regularly provide data concerning, for example, how many times in a given day (or even, a given hour) a particular ad was shown (i.e., the number of ad ‘impressions’ that occurred). If the ad had only one impression in a given time period, the search engine will tell the advertiser the exact position (from top to bottom) which their ad appeared in the list of competing advertisers' sponsored ads. If the ad was shown multiple times, the engine will provide the average position. To bill the advertiser, the search engine must also tell the advertiser the number of clicks each ad received and the total cost incurred.
For banner ads and other graphic-based ads that appear on a wide variety of websites it is becoming increasingly popular to match advertisers and publishers through ad exchanges such as DART™ (run by DoubleClick, a subsidiary of Google), RMX™ (the RightMedia Exchange, run by RightMedia, a subsidiary of Yahoo!), and AdECN™, run by Microsoft. Like the search engine sponsored ads themselves, these ad exchanges are typically run on an auction-based system, though advertisers usually agree to pay per 1000 impressions that publishers deliver, rather than on a CPC basis.
The advertisers themselves track the number of visitors they receive from each sponsored ad, be it text-based from a search engine or a graphic-based ad from an ad exchange. They record how many individual pages each visitor views and, ultimately, how many ‘conversions’ that visitor generates. For companies that take orders for products directly through their website, the act of placing an order would typically be considered a conversion. In cases where the advertiser has multiple products or services for sale at different prices, they will also track the amount spent per order and the cost of the goods sold, to determine the profit per order. For companies that do not typically sell products on-line directly, simply receiving a request through their website for a brochure or a request to be contacted by a sales representative might be considered a conversion. Some companies also (or only) sell advertising space on their website and therefore might track the number of pages each visitor views as the number of conversions, to be able to prove to the advertisers on the site that the company has delivered a promised number of ad impressions.
The basic functions of internet marketing therefore include:
Deciding on which search engines and ad exchanges to place advertisements. Google®, Yahoo® and MSN® collectively garner a majority of the traffic among English-speakers in the U.S., but Baidu™ receives the most in China and Baidu.com, their U.S. subsidiary, is popular with U.S.-based Chinese speakers.
Deciding on which search terms (or publisher's available space) to bid at any given time. (This function also involves the converse act of deciding on which underperforming terms or spaces to discontinue bidding.) For search engine marketing, given the number of brand-related terms and competitors' brand-related terms, plus generic terms common to an industry, plus the common misspellings and variants of those terms, plus terms which should only be considered if some other modifying term does not appear within a search expression, the number of keywords that a typical advertiser must contend with at any given time can run from thousands to hundreds of thousands.
Generating the specific ad text or ad graphic that will be shown. Often, advertisers will have multiple variations of each ad and will randomly show different variations to viewers to determine which variation gets the best response.
Joining together performance data from the search engines, ad exchanges and advertisers. Though it might sound conceptually straightforward, the act of tying a specific conversion to a specific impression (even if the conversion happened many days after the impression) is not a trivial task. The mere act of bringing the search engines' and ad exchanges' data and the advertiser's data together in one place is vital to determining the efficiency and profitability of various ads.
Analyzing trends and gauging the performance of individual ads or groups of ads.
Selecting target metrics and performance goals. Advertisers often gauge the performance of their on-line marketing efforts by either the amount spent per conversion or by the return on investment (ROI) and typically expect a far higher ROI for terms that contain their company's name or product brand names (terms which often deliver high-quality visitors at low cost) than non-brand terms.
Ultimately, though, the primary function of internet auction-based marketing boils down to setting a good bid for each ad. Because advertisers pay per click (or per set of 1000 impressions), even a bid that is only slightly higher than justified can lose small amounts of money per day and, given the difficulty of locating these ads among thousands of similar ads (many of which might normally lose money in any short amount of time), this can add up to a considerable sum. Underbidding for a given ad also carries a risk, that of losing potential customers to competitors.
Even though hundreds of millions of search queries are performed per day worldwide, the enormous number of keywords and search expressions coupled with the fact that clicks are usually only a small percentage of impressions (the click-through rate) and conversions a small percentage of clicks (the conversion rate) means that the amount of recent data available per keyword is often very limited. Therefore, the fundamental task facing a marketer in setting good bids on search engines lies in deriving a good estimate of the per-click conversion probability, even when provided with limited recent performance data.
In more generic terms, if the successful occurrence of an event, such as witnessing the obverse (i.e., ‘heads’) side of a coin on a given toss, is highly probable on any individual opportunity and many attempts are made for that successful event to occur, then estimation of the per-opportunity probability of success (henceforth called the ‘inherent conversion rate’) is straightforward. In cases where the inherent conversion rate is not subject to change over time, again such as with a coin toss, simply dividing the number of observed successes by the number of attempts yields a close estimate of the inherent conversion rate when the number of attempts is large. As the number of attempts grows larger, the observed conversion rate tends to more closely approximate the inherent conversion rate, such that the inherent conversion rate can be estimated to any arbitrary degree of accuracy simply by observing a sufficient (and easily calculable) number of attempts.
However, in cases where the successful occurrence of an event is given only a very limited number of opportunities to happen, especially when the per-opportunity probability of success is low, accurate estimation of this inherent probability of success becomes more complex. If the probability of success is not fixed, but instead can change over time, then an accurate estimation of this probability at any given point essentially becomes impossible. For systems where our expected benefit depends strongly on our guess of the inherent success rate, then our best recourse is to select at any time, from the observed data up until that time, an estimated value of the inherent success rate that minimizes, on average, the extent to which our guess is likely to be wrong.
Thus, the need exists for a system and related method that can generate good bid recommendations in an internet-based advertising context for most ads most of the time, even when the available performance data are limited. Further, what is needed is such a system and related method, which can also be used to estimate conversion rates, click-through rates and other factors associated with internet-based advertising.